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Cohort Effects in Wages and Promotions

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  • Illoong Kwon

    (Department of Economics, State University of New York at Albany)

  • Eva Meyersson Milgrom

    ()
    (Stanford Institute for Economic Policy Research, Stanford University)

Abstract

This paper studies the long-term effect of business cycle, employment rate and employment growth rate on later wages and promotions. Using Swedish employer-employee match data, we find that workers who enter the labor market during a recovery phase of a business cycle (when the employment rate is still low but employment growth is high) receive higher-than-average wages in the long-run. However, these long-term effects on wages are almost entirely driven by the differences in promotion speeds between cohorts. Workers starting in a recovery period are hired into slightly lower ranks, but are promoted at a higher speed than comparable workers during a contraction period. Simple theoretical models based on downward rigidity of wages and promotions, long-term contract, or stigma cannot explain a broad pattern of our findings, but models based on human capital, matching, and cyclical hiring can.

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Bibliographic Info

Paper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 07-025.

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Date of creation: Dec 2007
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Handle: RePEc:sip:dpaper:07-025

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Related research

Keywords: business cycle; employment; wage; promotion;

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Cited by:
  1. Illong Kwon & Eva Meyersson Milgrom, 2010. "Working for Female Managers: Gender Hierarchy in the Workplace," Discussion Papers 10-012, Stanford Institute for Economic Policy Research.
  2. Kunze, Astrid, 2013. "Gender differences in career progression: Does the effect of children capture low work effort?," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79705, Verein für Socialpolitik / German Economic Association.
  3. Johannes F. Schmieder & Till von Wachter, 2010. "Does Wage Persistence Matter for Employment Fluctuations? Evidence from Displaced Workers," American Economic Journal: Applied Economics, American Economic Association, vol. 2(3), pages 1-21, July.
  4. Sylvia Frühwirth-Schnatter & Andrea Weber & Rudolf Winter-Ebmer, 2010. "Labor Market Entry and Earnings Dynamics: Bayesian Inference Using Mixtures-of-Experts Markov Chain Clustering," Economics working papers 2010-11, Department of Economics, Johannes Kepler University Linz, Austria.

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